Monday, September 25, 2006

Market Psychology AM Update for 9/25/06

10:49 CT - A couple of things before I fly the coop. First off, it is confirmed: I will do a free Web seminar sponsored by the Chicago Mercantile Exchange and the Teach Me Futures site. Details will be posted on that site later this AM and also on my Weblog tonight. The topic of the seminar, scheduled for 3:30 PM CT next Monday, will be "Assessing Market Psychology". This Wednesday, I'll also be doing a talk in Naperville; see the Weblog for details. The other thing is just a market thought to leave you with...a speculation, not a prediction. What if the lows from the 19th and the lows from Friday and today are part of a large bottoming pattern? If so, we'd expect the subsequent rise to take us to new price highs. Just a thought...not yet even a hypothesis. Have a great day, y'all. Update tonight on the Weblog.

10:05 CT - Buying continues; we are in a range defined by the 1330-1 resistance mentioned earlier and the recent lows, which are pretty much equivalent to the Friday lows. If that trading range continues, I'd look for the midpoint of the AM range (around 1326) to serve as an average price, where we might look for topping setups above and bottoming setups below. Note how the break below the first hour range was eventually reversed per the Odds Maker setup. Have a great rest of the morning. I'll post again if there are major developments.

9:57 AM CT - OK, let's step back and review. Good economic news could not sustain higher prices. In those circumstances, you have to figure, "If good news can't push us higher, nothing will." We came down, hit the Friday average price, and then tested the Friday lows. As that happened a couple of divergences occurred. We saw higher TICK low readings as ES made new lows, and NQ/SMH showed some buying interest. That led me to cover up. If a trend is going to materialize or accelerate, it has to carry all the sectors. That wasn't happening. That's worth chart review after the close.

9:46 AM CT - Unusual buying in semiconductors led me to cover shorts here. Let's keep an eye.

9:36 AM CT - At crucial support; ER2 trying to put in a bottom; watching to see if we see rising lows in TICK as well. Failure to do so could give us that breakdown in prices.

9:19 AM CT - Nearing Friday's lows in NQ and close in the other indices. Note how failure to maintain the upside promptly sent us to the Friday average price--and now below. Friday's lows represent important support. A break with expanded volume at bid and with a broad number of stocks participating to the downside would likely bring a significant price decline.

9:12 AM CT - NQ leading the downside here, putting a crimp in any attempt to find a trading bottom. Inability to sustain volume at offer during rally after the number a negative for stocks. Note pickup in volume after the number and recent pickup in volume at bid in ES.

9:02 AM CT - OK, the number came out not so bad and buying resulted. The big question here is whether we can put in a bottom in this 1326 area or retrace the gains from Friday afternoon and overnight. I'm looking to see if we can get that bottom and challenge the 1330-1 overnight recent highs.

8:52 AM CT - Big bids and offers close to the market; that occurs most often when locals aren't afraid of institutions coming in and swiping them. Of course, that could change after the economic release. We're in a nice 3 point range for much of the overnight and early AM; it's the breakout from that range that will make the AM trade. Note, however, that ER2 is retracing much of its Friday and overnight rally. NQ also ran into a wall of selling as it tried to rally above recent resistance. Advancing and declining stocks now almost even. It's going to take some pretty favorable news to power this market higher.

8:45 AM CT - Sidebar: This idea keeps popping up--the notion of the U.S. escalating its military activities in the U.S. It's not just from the political left; see this Israeli Debka article...Meanwhile, the relative strength belongs to NQ in the early going...TICK positive throughout the AM so far, but ER2 looks heavy...1330-1 continues to repel buying so far. Volume tepid in advance of the housing number...I wonder what kind of number it would take to combine with the lower interest rates and kickstart a "worst of housing is over" speculation...Note a bit of AM selling in emerging markets ETF (EEM).

8:35 AM CT - One of the things I'm tracking early is ER2 vs. ES. If we are, as I suspect, in a topping process, I'd expect relative weakness in the broad market and relative strength from large caps. So far, the market is showing buying interest, with advancing stocks over decliners by about 450 issues, with positive NYSE TICK, but only modest ES volume at offer over that at bid. Early volume nothing to write home about; consistent with locals dominating and range bound trade--but let's see how that evolves. That 1330-1 area is still key resistance.

8:25 AM CT - Remember, per the Odds Maker results reported on the Weblog, we'll be looking at breakouts from the first hour range as potential opportunities to fade the market move...Shout out to excellent site, with solid tracking of upcoming economic reports and their expectations...That 1330-1331, BTW, shaping up as important early resistance.

8:14 AM CT - The yield on the ten-year note is under 4.6% and oil broke $60/barrel overnight. These dynamics, bespeaking the emerging economic weakness, have been a positive for stocks in the pre-open, but recall that it was the weak data from the Philly Fed that led to the recent downturn in equities. What's playing out is the ambivalence about "weakness as soft landing" vs. "weakness as recession/hard landing", with each economic update adding fuel to the debate. At 9 AM CT, we'll have yet another data point re: housing. We're trading well above the average trading price (1324) from Friday and should find initial resistance in the 1331/2 area; overnight support around 1327. Any bounce is occurring in the context of a market that is making fewer new highs with each rally (see today's Weblog entry)--something we need to keep in mind for the longer timeframe. Back after the open.